Cyprus has a growing housing stock overhang

If you are wondering why the real estate market has been doing so badly lately, the recently released data on dwellings from the October 2011 census provide a good clue.
The number of new dwellings constructed swelled from 70,094 in the ten-year period of 1991-2000 to 136,906 in 2001-10, marking an increase of 95%.
Yet the number of households in the same period grew by only 71,100, or 31%.
This building boom also led to an even higher increase in the number of new dwellings that lay vacant.
Newly constructed vacant dwellings grew by 288% in the same period, from 5,246 in 1991-2000 to 20,364 in 2001-2010.
Even allowing for the fact that some dwellings were built to be used as holiday homes (these are itemised separately in the figures from vacant dwellings), one has to wonder why so much investment was poured into dud real estate.
Annual construction of new dwellings peaked at 19,200 in 2008, but had dropped to 10,098 by 2011.
Construction of new dwellings that were vacant also dropped from 3,562 in 2008 to 3,039 in 2010.
But they mysteriously rose again in 2011 to 4,722.
What does this increase tell us?
One thing it tells us is that developers and their creditors must be eternal optimists.
The relationship between dwelling permits and dwellings constructed shows that new dwellings normally take around a year to construct.
The year 2010 was when Cyprus climbed out of recession and we all thought that the crisis was behind us .
So although new dwellings authorised actually dropped in 2010, it looks like developers took the mild upswing as an encouragement to build more, resulting in a higher number of new vacant dwellings in 2011.
Unfortunately all this has done is to have left us with a big overhang of housing stock.
In 2011 we had a total housing stock of 431,059 but only 309,300 households to fill them.
Yet ten years earlier, in 2001, we had a total housing stock of 294,143 and total households of 229,000—just enough spare for the few tourists who decide to buy.
With Europe in the doldrums, these dwellings are likely to remain empty, and getting crumblier and uglier by the day, for the foreseeable future.
So maybe next time developers and bankers get excited about a real estate upswing, someone should tell them to call an economist.
Fiona Mullen
www.sapientaeconomics.com